Say on Pay

As included in the Dodd-Frank Act, Say on Pay is a mandatory, nonbinding shareholder resolution offered by company management which asks investors to approve the compensation package for a company’s named executive officers (the CEO, CFO and top three most other highly compensated executive officers). As part of Say on Pay, companies are required to hold a non-binding “frequency vote” once every six years which asks shareholders whether Say on Pay should occur every one, two, or three years. Even though nonbinding, its impact has been measurable. Say on Pay has increased the influence of proxy advisory firms whose proxy voting policies and analyses are likely to favor “cookie cutter” approaches to executive compensation that may not reflect shareholders’ best long-term interests. Further, because most companies hold say on pay votes annually, the Center is concerned that the process may reinforce a shorter-term assessment of pay for performance by investors and proxy advisory firms and cause some companies to focus on developing pay programs that show good short-term alignment of pay and results to secure a high say on pay vote at the expense of programs that foster long-term shareholder returns. While Say on Pay has provided companies with increased investor engagement opportunities that allow them to offset the influence of proxy advisory firms, the Center believes the negative aspects of the mandatory vote outweigh these benefits.